macro economics the monetary system

macro economics the monetary system - What is Money? Money...

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What is Money? Money is anything that is generally accepted as a medium of exchange. To understand the role of money in the economy, it is better to understand first the barter system. The barter system is the system in which commodities are directly exchanged for other commodities. The barter system was characterized by a number of problems. The most significant among them were: 1.The problem of double co-incidence of wants 2.The problem of too many exchange rates 3.The problem of divisibility As we will see, money solves these problems. Functions of Money 1.Money serves as a medium of exchange. Since money serves as the medium by which commodities are exchanged indirectly for other commodities, the problem of double co-incidence of wants is solved. 2.Money serves as the unit of account. By this we mean that prices of goods and services are expressed in terms of money. With this, the problem of too many exchange rates associated with the barter system is minimized, if not solved. For instance, with the barter system, we have the
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macro economics the monetary system - What is Money? Money...

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